How to master salary benchmarking as a small business

Employee pay and salary bands are important considerations at every small business, and getting your salaries right to reflect both the market rate and what your company can afford can be a tough balance to strike.

Salary benchmarking is the process of researching data on average salaries in a specific industry, and is an integral step in getting employee pay right.

This article will explore what salary benchmarking is, how to undertake the research, and why it is so important for every business.

What is salary benchmarking?

Salary benchmarking is the process of gathering and analysing data on what companies pay employees in salaries. It involves evaluating and comparing the compensation packages offered by businesses operating in the same sector to establish the average salary for different roles.

The main goal of salary benchmarking is to compare your company’s offering to others’, with the aim of adjusting your compensation accordingly. This allows you to create a fair and competitive pay package for your own employees.

Managers also use salary benchmarking to identify moving salary trends and keep track of changes in the salary bands of specific job roles.

What are the benefits of salary benchmarking?

Salary benchmarking allows small businesses to get an insight into what competitors are paying their employees. This is important because it can help you to:

• Improve employee retention rates by keeping your remuneration package competitive
• Boost your recruitment offering, as you can offer the market rate or above
• Develop employee engagement by proactively adjusting their pay to reflect market rates, rather than leaving it to your employees to make a pay rise requests

The key benefit of salary benchmarking is the opportunity it gives you to compare your compensation packages to those of competitors. The outcome of this research allows you to adjust your salary bands, identify where your company is trailblazing and, on the flip side, where you are lagging behind.

How do I conduct salary benchmarking?

So, you know why salary benchmarking is important – but how do you actually do it? Here are three key steps to follow:

1. Make a plan

Like any effective action, making a plan to act as the roadmap for this process is crucial – and if you make it comprehensive the first time, this plan can be used in the future, every time you undertake salary benchmarking.

The plan should include your budget for this and your short-term and long-term goals.

2. Evaluate job titles and responsibilities

Each company may use a slightly different job title for the same role, so it’s important to evaluate the responsibilities for multiple job titles that seem similar – for example, a sales assistant and a sales coordinator are likely to have similar responsibilities despite having differing titles.

To get the most out of your time spent researching, ensure you have a clear job description for each employee at hand to refer to throughout the salary benchmarking process.

3. Choose your sources

This is a really important step in the salary benchmarking process – the data is only useful to you if it is from a reputable and accurate source.

Many small business owners use platforms like Glassdoor and Indeed, which allow employees to anonymously report the salary they receive.

Surveys conducted by reputable organisations like Morgan McKinley are another great way to collate pay information.

If this all feels a little overwhelming, you could hire a compensation consultant or executive salary benchmarking expert to conduct this research for you – this takes the burden away from you, leaving it in the hands of an experienced party.

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What should I do after my research is complete?

Once you have gathered and analysed your salary benchmarking research, it’s time to implement your findings at your small business.

The research will help you develop salary bands, which ensure every employee on your payroll is paid fairly. Salary bands reflect the minimum and maximum sum a company will pay an employee in a certain job role at each level.

The easiest way to build startup salary bands is to decide upon a midpoint of the salary band based on your research findings, and then consider how wide you are happy to make the band.

Some small businesses want to create salary bands that are very competitive in order to attract the top talent, while others are happy to offer the market average. There is no right approach to this and it differs from business to business – however, offering below market average will likely make hiring more difficult and employee retention challenging.

Is salary benchmarking enough to keep employees happy?

Salary benchmarking can support your mission to make employees feel valued, but it’s important to remember that a fair and competitive salary isn’t the only reason an employee may choose to work somewhere.

While salary is unquestionably a key consideration, employees often look for further benefits packages too. These could include:

• Flexible working hours
• Subsidised commuting costs
• Free lunches
• A cycle to work scheme
• Hybrid working
• Enhanced leave, such as maternity pay
• Pension plans
• Stock options
• Bonuses or commission

These benefits, of course, are extras to help keep employees happy – fostering a supportive work environment with respectful colleagues is also important.

Read more: How to discuss salary expectations with interviewees

Final thoughts

Salary benchmarking is an integral process to ensure you offer your employees a competitive salary that is fair, and meets – or surpasses – market value. This process is all the more important today, as competition for the top talent in many industries is fiercer than ever. With the right resources, planning, and support, salary benchmarking will create positive outcomes for your small business.

For more help with the process of paying your employees, check out our guide to finding the right HR and payroll software for your business, or to outsource your payroll processes, visit our list of the best payroll service providers.